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Microsoft and Google riding the cloud wave

Cloud-based services and infrastructure are boosting the financial performances of Microsoft and Google. In earnings calls this week, Google says it has developed 'deep enterprise' strengths and Microsoft says it's executing on digital transformations thanks to the cloud.

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Google and Microsoft are both benefiting from solid growth in enterprise cloud services.

Both companies released earnings reports this week that highlighted significant momentum in G Suite, Office Suite, respectively, and more sophisticated cloud platforms for business.

“We crossed a major milestone with more than 100 million monthly active users of Office 365 commercial,” Microsoft CEO Satya Nadella said during a conference call. “Office 365 commercial seats grew 35 percent year-over-year and revenue is up 45 per cent.”

Microsoft also reported a 15 percent year-over-year gain in revenue from Office 365 and other consumer products. The company ended the quarter with 26.2 million Office 365 consumer subscribers.

Alphabet, the parent company of Google, declined to disclose revenue from Google Cloud, but CFO Ruth Porat described the business as a major growth engine and “one of the fastest-growing businesses across Alphabet,” during the earnings call.

Google Cloud growing faster than ad business

Google CEO Sundar Pichai said Google Cloud also represented the largest growth in headcount and capital expense during the quarter. “People sense our commitment to the area. They understand the pace at which we are investing, they see that we are committed to machine learning and [artificial intelligence] at a deep level,” he said during the call.

“I think there is a very strong recognition that we have pivoted to being a deep enterprise company, and our conversations are very strategic. We are engaging at the highest levels within companies … I can see a qualitative lead and momentum there.”

Google Cloud revenue is grouped with hardware, Google Play and “other” businesses, so it’s not clear how much Google’s cloud business contributed to the segment’s US$3.1 billion in sales during the quarter. Revenue from the “other” segment grew faster than Google’s ad business ( jumping 19 percent year-over-year ) but it still pales in comparison to the US$21.4 billion Google banked on ads during the quarter.

Google Cloud’s reorganisation under senior vice president Diane Greene has also impacted how Google pursues opportunities in enterprise.

“The heavy lifting, I would say, is around how we meet enterprises in the market,” Pichai said. “We have reorganised so we have one face to the customers” with specialists who can help IT professionals solve difficult tech challenges or implement machine learning to improve efficiency and business outcomes, he said. “When a customer signs up for Google Cloud, they get more than [Google Cloud Platform] and G Suite. They have access to the ads and analytics teams, YouTube teams, and resources within our organisation.”

Microsoft benefits from hybrid deployments

Meanwhile, Microsoft continued to leverage its massive installed base of Office users and the shift to transform businesses around cloud-based infrastructure. “We do have a huge on-premises base,” Nadella told investors. “There is still a need for those on-premises products. That will continue, but our focus is on transitioning to the cloud. And you’ve seen us do this successfully with Office 365.”

Revenue from Microsoft’s Intelligent Cloud segment, which includes Azure, increased 11 per cent year-over-year to US$6.8 billion. The Productivity and Business Processes segment, which includes Office, Dynamics and LinkedIn, climbed 22 per cent from a year prior to US$7.96 billion.

Microsoft’s entire commercial cloud portfolio, which also includes Azure, Office 365, Dynamics as well as other cloud-based services tailored for enterprises, reported a 52 per cent year-over-year increase in its annualised revenue run rate to US$15.2 billion.

Google is also capitalising on the digital transformation trend, albeit at a much smaller scale than Microsoft “Increasingly, we are being asked to partner for mission-critical projects and full migrations, moving data from on-premise data centres to the cloud,” Pichai said. “We are seeing a meaningful shift, and this momentum is resulting in a fast-growing business.”

Cloud-based infrastructure, or infrastructure-as-a-service (IaaS), is one of the fastest growing segments in the global cloud market, and is projected to grow 36.8 per cent to US$34.6 billion in 2017, according to research firm Gartner. Cloud application services, or Software as a Service (SaaS), is projected to jump 20.1 percent to US$46.3 billion this year.

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